Accenture plc — Q1 FY2023 Form 10-Q
Reporting period: Three months ended November 30, 2022. Accenture is a global professional services company providing consulting and managed services across three geographic markets. Financial statements are unaudited; amounts below are U.S. dollars.
Financial and operating results
| Metric | Q1 FY2023 | Comparable period |
|---|---|---|
| Revenue | $15.75 billion; up 5% reported and 15% in local currency | $14.97 billion |
| Operating income / margin | $2.59 billion / 16.5% | $2.43 billion / 16.3% |
| Net income attributable to Accenture plc | $1.96 billion | $1.79 billion |
| Diluted EPS | $3.08 | $2.78 |
| Operating cash flow | $495 million | $531 million |
| Capital expenditures | $99 million | $182 million |
| Cash and cash equivalents | $5.90 billion at November 30, 2022 | $7.89 billion at August 31, 2022 |
Gross margin was 32.9%, unchanged year over year. The effective tax rate was 23.3%, compared with 24.4%, primarily reflecting lower expense from adjustments to prior-year tax liabilities. Cash dividends were $1.12 per share; $706 million was paid. Cash returned to shareholders totaled approximately $2.1 billion, including $1.4 billion of share purchases.
Cash used in investing was $782 million, including $686 million for acquisitions and investments. Cash used in financing was $1.68 billion, principally reflecting share purchases and dividends. Total debt was approximately $55 million, comprising $9 million current and $45 million long-term. Accenture reported $4.93 billion of borrowing facilities with no borrowings and no commercial paper outstanding; $885 million of letters of credit were outstanding.
Changes and business trends
- Revenue grew across all geographic markets in local currency. North America revenue rose 11%, Europe 17%, and Growth Markets 19%. The stronger U.S. dollar materially reduced reported growth; reported revenue growth was approximately 9.5 percentage points below local-currency growth.
- Managed Services revenue increased 20% in local currency, versus 10% growth for Consulting. Managed Services represented 46% of revenue, up from 44%.
- New bookings were $16.2 billion, down 3% in U.S. dollars but up 6% in local currency. Consulting bookings fell 14% reported, while Managed Services bookings rose 10%.
- Operating margin expanded 20 basis points. Higher compensation and labor costs were offset by lower non-payroll costs; management said pricing improved, but may not fully offset future compensation increases.
- Workforce was approximately 738,000, up from 674,000 a year earlier. Utilization was 91% versus 92%; voluntary attrition was 13% versus 17%.
- Remaining performance obligations were approximately $25 billion. Accenture expects to recognize about 61% in FY2023 and another 18% in FY2024. Many client contracts are terminable on short notice, and bookings are not equivalent to these obligations.
Outlook, risks and unusual items
- Assuming exchange rates remain within recent ranges, management estimated FY2023 reported revenue growth would be approximately 5 percentage points below local-currency growth. The filing does not provide a specific full-year revenue growth target in the supplied text.
- Management expected the FY2023 effective tax rate to be 23.0%–25.0%.
- Management said operating and longer-term funding needs should be met through operating cash flow and, if needed, borrowing facilities or future financial-market activity. It intended to use a significant portion of FY2023 operating cash generation for share repurchases.
- Key risks include uncertain economic and geopolitical conditions, slower client spending, foreign-exchange volatility, wage inflation and the ability to match staffing and skills to demand. Other disclosed risks include competition, cybersecurity, legal and regulatory exposure, and acquisition integration.
- Accenture was defending a putative class action relating to the Starwood reservation-database security incident. The court had granted class certification in part; Accenture was appealing and said it believed the suit was without merit and did not expect a material effect. Management also said reasonably possible losses from other legal matters were not expected to materially affect results or financial condition.
- Accenture completed individually immaterial acquisitions for $684 million, net of cash acquired. The company reported no material changes to its risk factors or market-risk disclosures, and management concluded disclosure controls were effective.
Important facts for investors to verify
- Whether local-currency demand and bookings convert into revenue, particularly given the decline in reported Consulting bookings and contract cancellation provisions.
- How currency movements and compensation inflation affect reported growth, margins and contract profitability.
- Cash conversion and liquidity: operating cash flow was below net income, while cash declined by $1.99 billion during the quarter, substantially alongside shareholder returns and acquisitions.
- Future repurchase and dividend levels, acquisition spending, and the company’s ability to sustain its stated funding plan.
- Developments in the Starwood-related litigation and any material changes in contingent exposures.